HM meets… Sir Robert Naylor

A year after publication, the government has finally accepted all 17 of Sir Robert Naylor’s recommendations for a far-reaching overhaul of NHS property and land. As ministers prepare to put his plans into action, Maria Davies talks to the builder turned architect of NHS estate.

When it comes to the bricks and mortar of healthcare, there isn’t much that Sir Robert Naylor doesn’t know. In his 16 years as chief executive of UCLH NHS Foundation Trust, he oversaw a construction programme of gargantuan proportions: turning a ‘pile of bricks’, as one commentator described the premises he inherited in 2000, into a gleaming campus at the cutting edge of medical R&D by the time he stepped down in 2016.

Coming after the multi-million-pound building programme he managed during his 15 years as chief executive of Heart of England NHS Foundation Trust, it was a development that helped earn him the nickname ‘Bob the Builder’. However, almost two years into his ‘retirement’, that particular appellation looks set to be superseded by ‘NHS architect’ as the government takes steps to implement his bold new vision for the reconfiguration of NHS estate.

Ministers pondered the far-reaching review of NHS property and land it asked Sir Robert to undertake in 2016 for more than 18 months. But in January this year, they finally accepted all of his recommendations, including the creation of an NHS Property Board, incentives for NHS organisations to take a more strategic approach to estates planning and, crucially, additional capital funding of £3.9bn to the £10bn he said was required.

‘It took the government a long time to respond to my report,’ says Sir Robert. ‘There were all sorts of reasons for that. There was the timing of various budget statements by the Treasury so the Department of Health and Social Care (DHSC) didn’t want to pre-empt anything in advance of big financial decisions about public sector investment, there was the change in Minister and some of my original recommendations were seen to be quite controversial. But I’m delighted now that the government have responded. They’ve accepted all 17 of my recommendations, albeit on two of them they’ve accepted them in principle but want to take a more nuanced approach to my recommendation.’

The rationale behind the government-commissioned review is simple: the NHS is sitting on billions of pounds of unused or under-utilised land and buildings which are expensive to maintain and inadequately configured to deliver new service visions. ‘The Five Year Forward View is all about how we can modernise our services in the 21st century rather than the 20th century. The way hospitals and primary care are run might have been okay in 1948 and for much of the last century but it’s certainly not okay today,’ says Sir Robert.

The solutions, however, are more complex, certainly in political terms. According to Sir Robert, the NHS needs an immediate injection of £10bn in its estate to meet existing maintenance requirements and fund the delivery of the Five Year Forward View. He recommended that this be split more or less equally between three sources of funding: government coffers, private sector investment and the disposal of wasted assets.

The first is uncontroversial and easily achieved now the government has agreed to a capital allocation of £3.9m, but Sir Robert acknowledges that the last two could prove less palatable to politicians and the public unless carefully executed.

‘I’ve always said to politicians that you mess with the NHS at your peril,’ he says. ‘A lot of response to my original report from people on the left of politics was that it’s a sell off of NHS assets, which it isn’t. It isn’t a sell-off of assets, it’s a reinvestment in modern healthcare infrastructure.’

Nuanced approach

According to Sir Robert, it’s these political sensitivities that are behind the government’s ‘more nuanced’ approach to his recommendation for an NHS Property Board. Instead of being an arm’s length body, as he advised, the Board will be under the direct control of the DHSC and chaired by Health Minister Lord O’Shaughnessy.
This, Sir Robert believes, could take much longer and make certain aspects of his report more difficult to implement. However, he understands the political motivation for wanting to manage large infrastructure decisions internally.

‘There will be a difference in the balance of the criteria and importance of decisions so if you were looking at this from a purely commercial perspective then you might make a decision to knock down a hospital and build a new one, but if you are looking from a political perspective then knocking down a much-beloved hospital in a local community would have people out on the streets,’ he says.

An urgent case

Nevertheless, he maintains that reconfiguration is urgent, not just to free up capital but to re-invest the estimated £1bn a year currently being spent on the maintenance of old, dilapidated buildings and streamline patient services. The report identified between £2.7bn to £5.7bn (depending on a range of things like planning permissions) of wasted assets in the NHS and recommended that to incentivise disposal, the government should match the sale proceeds with a ‘2 for 1’ offer. This is another area where Ministers have indicated a more nuanced approach, with some areas likely to receive more government funding, others less, to dispose of unused properties.
Sir Robert acknowledges that given the high concentration of asset value in the capital – London has just 13% of the wasted assets identified but they make up 57% of the value – a strict ‘2 for 1’ would have been problematic. However, he is encouraged that Ministers have agreed to introduce benchmarking to ensure only those trusts that can demonstrate the efficient use of estate and a strategy for the disposal of spare assets, will be eligible for public sector investment.

‘Now that money needs to be reinvested but that would mean you end up with new buildings, new facilities, new equipment and centralised services with all the right kind of diagnostics in the right place so that the whole process of care is more productive and more efficient,’ he says. ‘There are lots of examples, particularly in London, where hospitals are close to each other with fragmented services. Each of those hospitals may have a substantial amount of backlog maintenance and the preferred thing might be to knock them all down and build a comprehensive one in the middle. There could be a lot of objections to doing that but if you don’t do anything at all you end up with crumbling hospitals.’

However, hospitals are just one aspect of Sir Robert’s vision for a reconfigured NHS estate and he believes that much of the £10m will need to be spent modernising primary care facilities.

‘In my report I argue that a third of the £10bn should come from the private sector and should primarily focus on primary care because that’s historically how it’s always been funded,’ he explains. ‘So, I argue that we should be building hundreds of new primary care centres, comprehensive community facilities, and they should be funded through private sector investment.’

Making better offers

In the wake of his report, a consortium of primary care property investors – Assura, Octopus and PHP – announced they would invest £3.3bn in the development of new NHS primary care premises in return for rental charges of less than £200m a year. To date, the NHS has not progressed the idea and, according to Sir Robert, this is largely because the proposition is unrealistic in today’s economic and political climate.

‘When you look at the detail of their offer, they are looking for a generous return on investment of 6%,’ he says. ‘My view is that they have to sharpen their pencil and that they have to be more realistic about the value of money in the current economic environment. Although interest rates may well go up and have gone up recently they are at an all-time low. Why should the NHS be paying a lot more than the rate that the Bank of England can raise money?’

What is more, he says, the collapse of Carillion has been a game-changer in a NHS where private sector involvement is already eyed with suspicion.
‘Carillion is going to be a landmark issue for the NHS,’ he says. ‘Whereas the pendulum was swinging over recent times towards ‘let’s have more private sector involvement in the NHS’, Carillion is going to push that pendulum straight back again. Now people are raising questions about trust in companies like Carillion and, therefore, saying we need to be more careful in the future,’ he says.

Nevertheless, he believes there is a significant role for private sector investment and says the primary care consortium offer could land on the negotiation table if the companies involved are willing to revise their starting position. However, they could be facing fierce competition from a new breed of willing investors in the form of sovereign wealth and pension funds.

Indeed, according to Sir Robert, one such fund has already indicated its interest in investing £5bn in NHS estate for an initial return of just 2% – three times lower than the consortium’s offer.

‘Sovereign wealth funds, I would say several Middle East countries, would be only too happy to invest in the NHS because they are awash with cash…that’s where I think we could be focusing our attention in terms of private sector investment,’ he says.

This type of funding is not without its drawbacks. The attraction of PFI deals and offers such as the consortium’s is that as well as managing the build and assuming the risk, the debt is kept off the Treasury’s balance sheet. Conversely, sovereign wealth and pension funds are asking for government guarantees and would require the NHS to take the risk during construction. Large-scale projects that resulted would also require the NHS to have internal skills and capabilities or buy in potentially expensive professional services.

According to Sir Robert, however, none of this is insurmountable. He acknowledges that not all healthcare organisations have the infrastructure to be able to manage large-scale projects but as part of his recommendations, the government has developed a Strategic Estates Programme to engage with STPs. In addition, he says sovereign wealth funds may be willing to forego a guarantee in return for slightly higher interest rates.

‘The question is how can you maximise the amount of money you bring in, minimise the percentage interest you pay and keep [the debt] off the government balance sheet at the same time? And that’s the political conundrum… that’s really the discussion that should be going on about private sector investment. How can you maximise the amount of money, minimise the rate of return but keep it off the government balance sheet,’ he says.

Ultimately, the private sector investment required in NHS real estate is likely to come from a variety of different sources depending on the needs and capabilities of individual trusts and STPs. However, Sir Robert is clear that in future, the financial relationship between the NHS and its private sector partners needs to be far more balanced.

‘I’m not arguing against private sector investment,’ he says. ‘Indeed my report says a third of it should come from private sector, but the private sector needs to be much more realistic because some of these investors in the past, particularly in PFI schemes have walked away with huge profits that the NHS can’t afford …I definitely wouldn’t argue for the old style PFI investment but I would argue for private sector investment, but in a more realistic and economically efficient way.’